Why Greater Equality Strengthens Society

December 6, 2011

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A placard placed against a war memorial in central London November 30, 2011. REUTERS/Toby Melville

For American progressives, looking at Britain can sometimes seem like looking in a mirror. The British face essentially the same economic crisis we do. A never-ending recession—and never-ending windfalls for CEOs. Austerity budgets. Rising poverty. Young people without a future. Old people without security.

But this mirror analogy cracks as soon as we start comparing progressive agendas. Some top priorities on America’s progressive to-do list simply don’t show up on the British version. There’s no mystery why: British progressives already have in place a good chunk of what we’re still desperately seeking. A healthcare system that ices out profiteering insurers? Britain has one. Progressive tax rates up to 50 percent on income over $250,000? Check. A financial transactions tax on stock trades? The British even have that, too.

These contrasts should give us pause. If the British are hurting even after achieving so much of what we’re seeking, we’re clearly not seeking enough.

Maybe our transatlantic colleagues can help us here. What are they seeking? Can their visions—and strategies—inform and embolden ours?

I spent some time in London in October—just after Occupy Wall Street launched in Manhattan and just before British Occupiers set up shop at St. Paul’s Cathedral—posing these questions to an array of thoughtful campaigners against Britain’s top 1 percent. I didn’t expect these activists to have any “secret” for plutocracy-busting success. But I was hoping to find some emphasis that I hadn’t expected, and I found plenty.

Take orientation, for instance. Unlike us, British progressives are not looking backward for ideas and inspiration. We do that all the time: contrasting Obama with FDR, demanding new CCCs, coveting New Deal tax rates. Britain has a similar heroic progressive past—the years right after World War II, when the Labour Party, steeled by sacrifice and solidarity, laid the foundation for the modern British welfare state.

Conventional Labour Party politicos still try to “resuscitate that 1945 moment,” notes Neal Lawson, the chair of Compass, Britain’s largest independent progressive pressure group. But British progressives don’t see that moment as a blueprint for the future, because the conditions that made it possible—an economy built on mass manufacturing, a heavily unionized working class, cold war rivalry—no longer exist.

British progressives also have a deeper point to make: the basic blueprint of their heroic past may be inherently flawed. The activists I met, young and old alike, sprinkled their analyses with dismissive—and disconcerting—references to “tax and spend” policies. How could they, I wondered, so casually accept a basic conservative frame? Didn’t they realize they were legitimizing a right-wing epithet?

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I eventually caught on. They don’t consider “tax and spend” any sort of social engineering outrage. They simply consider it inadequate to the task of creating the just and sustainable society our future demands. Such policies take the corporate economy as a given—and accept that it will help some and hurt others. The tax-and-spend antidote to this inequality: tax the fortunate to fund programs that boost the disadvantaged.

This notion of the “redistributive state” drove Labour Party policy from the mid-twentieth century to the 1990s, when New Labour added a perverse twist. To regain power in Thatcherite Britain, Tony Blair and friends argued, Labour would have to soothe the City, Britain’s Wall Street. New Labour, they insisted, could comfort the bankers and help poor people at the same time—by freeing the City to rev up the economy. If the City boomed, even modest levies on the rich would raise enough revenue to end child poverty. In effect, Blair was positioning British high finance as “a cash cow for an improved welfare state,” says Stewart Lansley, an award-winning analyst of British poverty.

Once elected in 1997, New Labour followed through on this City soothing. “Light touch” regulation soon had the economy roaring—and made the rich phenomenally richer. Growing inequality didn’t seem to matter as long as poor people were getting some help. As Blair strategist Peter Mandelson famously put it: “We are intensely relaxed about people getting filthy rich, as long as they pay their taxes.”

Of course, growing inequality did matter. In Britain, as in the United States, the chase after grand fortune would crash the economy. The poor would be worse off. The rich, after a brief dip, would rebound.

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The lesson in all this? “We need to attack inequality at its roots—and not depend on redistribution at the end,” says Faiza Shaheen, a young economist at London’s innovative New Economics Foundation.

Shaheen makes a medical analogy. Over time, she explains, viruses can develop resistance to antiviral medications. The rich, over time, develop resistance to redistributive taxes. They use their wealth and power to carve out loopholes and lower rates. Their fortunes balloon. Inequality grows.

Smart public health officials stress prevention. Smart social and economic policy, says Shaheen, would stress prevention, too. We shouldn’t rely on our ability to tax income that concentrates at the top. We should prevent that income from concentrating in the first place. And the front line of any prevention struggle should be the corporate enterprise, where power-suited 1 percenters are raking off a fantastically disproportionate share of the wealth our economies generate. Inequality simply matters too much, sums up Shaheen, to let it dig in.

British progressives were never comfortable with New Labour’s “intense relaxation” about people getting rich. But they now have much more evidence to back up their instinct—and a renewed sense of egalitarian confidence. Both the evidence and the confidence come in large part from a remarkable 2009 book, The Spirit Level: Why Greater Equality Makes Societies Stronger, by British epidemiologists Richard Wilkinson and Kate Pickett.The authors explore the impact of inequality on modern societies and demonstrate in graphic detail that people in more equal nations live longer, healthier and happier lives. Wilkinson and Pickett took their stunning data slides to cities across Britain. If Britain had levels of inequality as low as those of Scandinavia and Japan, they explained, British murder rates would drop by half, mental illness by two-thirds, teen births by 80 percent.

The Spirit Level became a bestseller, and two advocacy groups have formed to deepen its impact. One Society reaches out to policy-makers; the Equality Trust helps inspired readers organize locally. The campaigns seem to be having an impact. The Equality Trust has so far persuaded eighty-seven members of Parliament to sign a pledge to make Britain “a more equal society.”

In the run-up to the May 2010 general election, the leaders of Britain’s three major parties jostled to claim the fairness mantle. Conservative Party leader David Cameron even favorably cited The Spirit Level. “We all know in our hearts,” he opined, “that, as long as there is deep poverty living systematically side by side with great riches, we all remain the poorer for it.”

After the 2010 elections, Cameron, the new prime minister, moved quickly to burnish his fairness credentials. With considerable fanfare, he tabbed Will Hutton, a respected journalist and foundation executive, to conduct an official policy review of pay disparities within the public sector.

The interim report pleasantly surprised progressives who considered the review little more than a cynical ploy to buttress right-wing claims about public sector “fat cats.” Hutton documented that public officials make up only a minuscule sliver of the top 1 percent. The private sector, he added, “needs to get a grip on the CEO pay arms race in the name of a better, more productive and fairer capitalism.”

The recommendations of the final “Hutton Review,” released this past March, were toned down. But they sank out of sight anyway, as Conservatives prone to demonizing the public sector saw no value in them.

British progressives, meanwhile, had already started down a different road. In August 2009 Compass rallied 100 progressive leaders and called on the then-ruling Labour Party to establish a “High Pay Commission” that would aim to help ensure that “out of control rewards” could never again fuel the “excessive risk taking” that can melt an entire economy.

Labour ignored the call, and after the elections Compass decided to move ahead on its own. With foundation support, the group filled an independent High Pay Commission with a blue-ribbon cross-section of British civil society, business and labor. The new commission, chaired by a former Financial Times editor, quickly gained a high media profile. A poll unveiled at the launch revealed that only 1 percent of the public believed that CEOs should be making more than £4 million (about $6.4 million) a year. Britain’s top 100 execs were then averaging more than $7.7 million. A follow-up data release from this past spring divulged that in 2010 execs at bailed-out British banks took home more than double their compensation a decade earlier.

“We can’t reverse this trend overnight,” the commission’s lead staffer, Zoe Gannon, admitted in October. But the commission, Gannon added, could challenge the assumptions framing the mainstream debate, and that’s just what the commission’s final report, released November 22, has done.

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Until now, in both Britain and the United States, the executive pay debate has revolved around protecting and empowering shareholders—so “poorly performing” CEOs don’t walk away rich while share prices plummet.

British lawmakers gave shareholders “say on pay”—the right to take advisory votes on executive pay—nearly a decade ago. US shareholders didn’t get that right until the Dodd-Frank financial reform legislation passed last year. But “say on pay” hasn’t ended runaway compensation in Britain, where executive bonuses have nearly tripled over the past decade. Top exec pay at banking giant Barclays has gone from thirteen times average British worker pay in 1980 to 169 times the worker average today.

Such “stratospheric” increases, the High Pay Commission report charges, are “damaging the UK economy”—undermining productivity, distorting markets, draining talent from key sectors. Expecting only shareholders to end this executive excess makes no sense, the commission suggests, not when the excess imperils more than shareholders. We have all become stakeholders in the decisions that determine the distribution of corporate rewards.

The report recommends a series of steps to empower this broader community of stakeholders. Real employees, not just CEO cronies, should sit on corporate board remuneration committees. And full disclosure must accompany every facet of the process—not just so shareholders can protect their investment but so that workers and consumers can mobilize and press against enterprises that contribute to greater inequality.

How can stakeholders gauge corporate contributions to inequality? The commission recommends that every British corporation be required to publish the ratio between top executive and median worker compensation. Pay ratios have been floating around British egalitarian circles for quite some time. Various progressive groups have called for a “maximum wage” set as a multiple of worker pay. David Cameron even asked his Hutton Review to consider limiting top pay in the public sector to twenty times bottom pay. That review, in the end, rejected ratio limits but endorsed disclosure, in both the public and private sectors.

Progressive groups like One Society see much more organizing potential in pay ratios than in traditional “tax and spend,” mainly because three decades of right-wing pounding against government have left the public deeply wary about expanding the welfare state. Polls, by contrast, show widespread interest in limiting pay gaps.

“The idea that we have a lot of people at the top who get more than they earn and a lot of people at the bottom who earn more than they get,” says One Society’s Duncan Exley, “has quite strong support.”

One Society and its sister campaign, the Equality Trust, like to invert the typical ratio formula. Instead of talking about executive pay as a huge multiple of worker pay, they stress worker wages as a tiny fraction of executive pay. Why the inversion? Talking in terms of multiples, explains Equality Trust’s Bill Kerry, can play into the inequality apologist narrative. Corporations have no choice, CEO pay defenders argue; they have to pay high multiples to “attract talent.” But inverting the ratio forces apologists to defend the morally indefensible notion that workers and their work have virtually no value.

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British activists have begun building a pay-ratio politics at the local level, too. Last year the Greater London Authority pledged to reduce the high-to-low pay gap “to no more than 20 times, with a long term goal of no more than 10 times.” Equality Trust activists are running a “My Fair London” campaign to tighten that commitment.

Another locality is moving more boldly. Islington, a London borough that sits next to the financial district, formally adopted a ten-times pay commitment in early October. This past summer, the borough slashed the salary of its incoming chief executive by nearly 25 percent, to £160,000 (about $250,000). “It’s hard to lecture others about inequality,” says Islington Labour Party council member Andy Hull, “if we don’t have our own house in order.”

Islington’s Labour Party activists won a council majority last year on a promise to narrow inequality in a jurisdiction home to both latte-sipping bank execs and 45 percent child poverty. To start making good on that promise, the new Labour majority created a “Fairness Commission” to prepare a gap-narrowing plan and invited Britain’s most celebrated egalitarian, Richard Wilkinson, to chair the panel. Hull served as vice chair, and his fellow commissioners even included the CEO of the Islington Chamber of Commerce.

The Fairness Commission held a series of public hearings in sites as disparate as a former crack-haven housing project and the swank offices of an elegant Islington-based global law firm. Its final report, “Closing the Gap,” appeared in June, just as national austerity cutbacks were kicking in.

In this climate, the panel argued, achieving greater equality has become more important than ever. Volunteer initiatives expected to pick up the slack can never gain traction in localities where “social cohesion and community life have weakened under the impact of widening income differences.”

A local government, the panel acknowledged, has limited clout; it can’t force private employers to narrow pay differentials. But a public employer like Islington can ensure its lowest-paid employees a living wage, limit pay ratios and encourage the council’s 10,000 private employers to adopt similar benchmarks.

The Islington council is implementing these proposals. Local employers who honor the “fairness agenda” will earn a “kitemark”—a recognition symbol they can publicly display. And over the next year, Hull and his colleagues will be leading citizen delegations to meet with Islington’s 100 largest private employers—a cohort that includes Arsenal, one of the world’s five top pro soccer franchises, where janitors make less than the London living wage.

“Imagine the pay differential there,” says Hull. “I’m not kidding myself that we’re going to get Arsenal to agree to a one-to-ten pay ratio anytime soon. But I’d like to think we could get their cleaners enough to have dignity.”

Other localities are ramping up fairness commissions on the Islington model. The wage ratios that emerge from these efforts, Equality Trust’s Bill Kerry believes, will help stimulate an ethical consumer movement that champions “narrow gap” employers. Every consumer, in effect, will be able to become an advocate for more equitable workplaces.

Maybe every taxpayer, too. The pounds average British families pay in taxes regularly pour into the coffers of private contractors that lavish windfalls on their top execs. At Serco, a corporate giant that gets more than 90 percent of its revenue from public bodies, the CEO last year took in over £3.1 million (about $5 million). Public bodies can end these taxpayer subsidies for inequality by giving preferential treatment to “narrow gap” contractors, and by denying tax dollars to those with overpaid executives. They can even extend this denial to corporations that line up for tax incentives and subsidies.

Leveraging the public purse in this way would require, as a first step, the mandatory disclosure of corporate pay gaps that progressives have been pressing for and the High Pay Commission report has recommended. Ironically, that mandate already exists, at least on paper, in the United States. Last year New Jersey Senator Bob Menendez outflanked corporate lobbyists and slipped into the Dodd-Frank bill a provision that requires publicly traded companies to reveal their CEO–median worker pay ratios every year. The Securities and Exchange Commission hasn’t yet articulated how it will enforce this mandate, and embarrassed corporate shills are pushing hard to get it watered down—or repealed in Congress.

So Americans have a ratio disclosure mandate with no political momentum behind it—and no vision for making the most of it. Brits have no mandate but momentum and vision. They see how organizing consumer and procurement battles over pay ratios could help bring about a sea change in Britain’s polite political culture. “Excessively high incomes,” as the British Archbishop of York John Sentamu recently wrote, have to become as socially “unacceptable” as racism and homophobia.

That’s not to say that British progressives feel they can tame inequality one enterprise at a time. “I’m patient,” Compass chair Neal Lawson says with a smile, “but not that patient.” Compass recently released a plan—endorsed by 100 British economists—that sets forth not just an alternative to the austerity cuts that hundreds of thousands of British workers protested on Novem- ber 30 but an alternative “to business as usual and all that means for growing inequality, climate change, and people’s well-being.”

To go beyond this “business as usual,” the plan demands national action on everything from creating a publicly accountable British investment bank to forging a new progressive tax structure. Such action, Compass continues, has to prioritize “fairness over greed, the needs of productive capital over finance capital, the long term over the short, and the needs of people and the planet over the excessive and undeserved profits of a few.”

None of the British thinkers and activists I met see these reforms as imminent. But most share a feeling that the public must begin to see some indication that progressive approaches can actually curb the inequalities so rampant around them.

Without this sense of progress, the danger remains that growing social cynicism—particularly among the young—may erupt in more outbreaks of looting and burning, as London experienced this past summer. And then what?

“The response to crisis doesn’t have to be left-wing,” notes George Irvin, a retired British progressive economist steeped in continental European history. “It can be right-wing as well.”

And incredibly ugly. Unless we get our acts together—on both sides of the pond.

Sam PizzigatiSam Pizzigati, an Institute for Policy Studies associate fellow, is the author of The Rich Don’t Always Win: The Forgotten Triumph Over Plutocracy That Created the American Middle Class, 1900–1970 (Seven Stories Press). With Chuck Collins, he edits Inequality.Org.